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Old 02-04-2009, 06:04 AM
 
Location: The Beautiful Pocono Mountains
5,450 posts, read 8,016,763 times
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If people bid half off peak in my area, the prices wouldn't even be what they paid for them 11 years ago!!

I think that's just wrong.
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Old 02-04-2009, 07:16 AM
 
Location: Montgomery County, PA
2,771 posts, read 5,784,977 times
Reputation: 604
Quote:
Originally Posted by Older&Wiser View Post
Peoiple don't have to read that to understand there is a problem going on. We're bombarded with it every time we turn on the news or read a paper. It's almost like the poster is taking glee in knowing that housing posts are going down. Everyone is, or is going to suffer. Let's try to be a bit positve.
No-one likes a pessimist, but they are an important part of the pricing system. It is bad enough that it is impossible to "short" housing, which is an obstacle to prices correcting.

There is an unexamined premise in your post that high asset prices are a good thing. This premise is often stated, but seldom defended.

Artificially high prices are a problem because they lead to an accumulation of inventories which ultimately reduces real value (think vacant houses) and make it difficult to buy and sell (resulting in lower sales numbers)

Artificially low prices are also a problem because they lead to rationing.
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Old 02-04-2009, 07:37 AM
 
Location: Montgomery County, PA
2,771 posts, read 5,784,977 times
Reputation: 604
Default asset bubbles aren't good for the economy

Quote:
Originally Posted by JamesBoyer View Post
Not inherently, but there does seem to be a little glee in the chanting, Never mind that every few percentage points further down the real estate markets accross the country get pushed down, also makes it harder for the economy to improve.

The values of peoples homes, has a big effect on what happens in this economy going forward, even the Republicans in Congress recognize that, which is why the Republican Senator from Nevada, John Ensign was on CNBC today saying that Obama's stimulus plan should include a $15,000 tax credit to anyone purchasing a home.
This is a fallacy. Asset bubbles are not good for the real economy; and propping up asset bubbles isn't good for the real economy either.

The problem with asset bubbles should be well understood at this stage-- it creates corresponding bubbles in markets for securities collateralized by those assets, and those bubbles threaten the integrity of the banking system. It also results in over-capitalization of industries whose business is driven by those prices (and a proportional under-capitalization of everyone else) -- or to put it in plain English, people aren't spending as much money on anything besides housing, because they don't have much left by the time they've made their mortgage payment.

It isn't the lower asset prices that are bad for the economy, it is the climate in which they are declining (a deflationary environment). The economy cannot go forward in such an environment. This is key -- it isn't the high asset prices that is good for the economy, it is an economic climate in which economic growth, wages and asset prices increase steadily and proportionally (the latter is what doesn't happen even on the way up). This cannot happen while a bubble is deflating.

Therefore, propping up a deflating asset bubble is unhelpful. It results in prolonging the current deflationary state of the economy. The sooner prices correct, the better. As I stated earlier, if this were the stock market (which is forward-looking), prices would correct immediately because there is the short-selling mechanism which ensures that there are sellers even when those who have "long" positions don't want to sell.

The politicians are either ignorant regarding the fundamentals of economics, or are pandering to those who are. $15000 doesn't come close to bridging the gap between historical norms, and as "sholden" pointed out, when that goes away, prices will drop.

It is appalling that some believe that an acceptable "solution" to dealing with an asset bubble is to prop it up at the expense of the tax payer.
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Old 02-04-2009, 08:36 AM
 
238 posts, read 688,672 times
Reputation: 141
Quote:
Originally Posted by JamesBoyer View Post
Not inherently, but there does seem to be a little glee in the chanting, Never mind that every few percentage points further down the real estate markets accross the country get pushed down, also makes it harder for the economy to improve.

The values of peoples homes, has a big effect on what happens in this economy going forward, even the Republicans in Congress recognize that, which is why the Republican Senator from Nevada, John Ensign was on CNBC today saying that Obama's stimulus plan should include a $15,000 tax credit to anyone purchasing a home.
Mr James, I will say very respectfully that you have NO IDEA of what you're talking about. Some people in Congress are conviniently just as lost as the average citizen. The value of people's homes is based on the credit paradigm. The real indicator of economic growth is productivity not credit. You must be a real estate agent or related to the industry because this preposterous rhetoric is only supported by some real estate industry individuals.
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Old 02-04-2009, 08:36 AM
 
Location: New Jersey
2,082 posts, read 4,525,780 times
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Quote:
Originally Posted by JamesBoyer View Post
Never mind that every few percentage points further down the real estate markets accross the country get pushed down, also makes it harder for the economy to improve.
let me understand this. you're saying the bubble should persist because that will help the economy? inflation adjusted underpaid people should just go ahead and buy houses 4-5x their income just to save the economy? but didn't this scenario just create this whole mess in the first place?

to get out of this cycle, either home prices have to drop significantly or incomes have to increase significantly. you tell me which one is more likely to happen.
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Old 02-04-2009, 08:48 AM
 
238 posts, read 688,672 times
Reputation: 141
The stimulus packages, two so far, will translate in printing $700 billion + $850 billion dollars. On the other hand, the U.S. gross domestic product shrank by 3.8% during the last quater in 2008. This is the clear indicator that inflation will be on the rise. One of the fundamentals of economics is that injection of liquidity in the market MUST be paired with productivity growth in order to avoid inflation. For the life of me, I can't understand how some people have the firm belief that the stimulus packaged will stimulate the economy. What kind of doctrine are people following? Treasury bonds are becoming worthless because the increasing lack of faith in the U.S. government to pay its obligations to foreign creditors. And here we are repeating the mantra that buying a house right now is a smart move?.........Holy ****!
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Old 02-04-2009, 08:59 AM
 
1,551 posts, read 4,291,076 times
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When housing drops to a normal level, where the average hard-working, responsible citizen can afford a home without putting his family's financial future (and the country in general) on the edge of financial ruin, it will indeed be a thing to be happy about.
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Old 02-04-2009, 09:31 AM
 
263 posts, read 486,873 times
Reputation: 34
Quote:
Originally Posted by Jerseyt719 View Post
If people bid half off peak in my area, the prices wouldn't even be what they paid for them 11 years ago!!

I think that's just wrong.
Dow in February 1998 was 8500 which is higher than today. Also, economy (finance and tech) was strong, there was some middle class , there was no war.

If you put things in perspective, half off peak is a great deal.
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Old 02-04-2009, 10:14 AM
 
526 posts, read 1,291,637 times
Reputation: 74
Quote:
Originally Posted by Lusitan View Post
When housing drops to a normal level, where the average hard-working, responsible citizen can afford a home without putting his family's financial future (and the country in general) on the edge of financial ruin, it will indeed be a thing to be happy about.
if homes were to drop to that level based on what I assume you mean by that level, it will no longer meet your definition anymore, and prices would have to fall further, since your average hard working responsible citizen would then be out of a job since the economy would have tanked so badly by then that we would truly be in a depression. But you don't agree with that, because you have your mind stuck on some statistic.
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Old 02-04-2009, 10:42 AM
 
744 posts, read 1,288,843 times
Reputation: 182
Quote:
Originally Posted by JamesBoyer View Post
if homes were to drop to that level based on what I assume you mean by that level, it will no longer meet your definition anymore, and prices would have to fall further, since your average hard working responsible citizen would then be out of a job since the economy would have tanked so badly by then that we would truly be in a depression. But you don't agree with that, because you have your mind stuck on some statistic.
So you are saying that the in the late 1990s, when home prices were at exactly that level, that the average hard working responsible citizen was out of a job and we were in a depression?

Oh what, we weren't? It was an economic boom at that time? But house prices weren't sky high, how can that be?

House prices are not the be all and end all of the economy. That they currently are acting as if they are is just more evidence that we are still in the midst of the collapse of an unprecedented housing bubble.
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